Medicare Out-of-Pocket Costs: Where Is Your Money Going?

For most Americans, 10 years of working and paying Medicare taxes (amongst other requirements) makes you eligible to receive Medicare coverage. However, you will still be responsible for some Medicare out-of-pocket costs. Depending on the plan you choose and your yearly income, you will have more or less to pay in healthcare costs. We’re here to break down those expenses for each Medicare part. Let’s get started.

What Are Medicare Out-of-Pocket Expenses?

Premiums, deductibles, coinsurance, copays, and prescription drug costs account for all types of Medicare out-of-pocket costs. These are forms of payment made by you, the beneficiary, and each Medicare part includes different rates.

Part A: if you or your spouse paid taxes during employment, you usually don’t have to pay a premium for Medicare Part A, also known as hospital insurance. If you have to buy into Part A, the monthly premium can go up to $411. Each benefit period has a deductible of $1,288, and the coinsurance depends on the length of time you stay at a hospital. Part A coinsurance is as follows:

Days 1-60: $0 for each benefit period

Days 61-90: $322 per day of each benefit period

Days 91 and beyond: $644 per “lifetime reserve day” after the 90th day

After Lifetime Reserve Days: all costs

Part B: if you already are enrolled in Medicare Part B, also known as medical insurance, and your premium is automatically deducted from Social Security, your monthly premium will remain the same in 2016 ($104.90). If you’re a new enrollee, you will pay the following premium based on your 2014 yearly income:1

Yearly Income in 2014

2016 Monthly Part B Premium

Individually filed tax return

Joint filed tax return

Married and separate filed tax return

Less than $85,000

Less than $170,000

Less than $85,000

$121.80

$85,001 – $107,000

$170,001 – $214,000

N/A

$170.50

$107,001 – $160,000

$214,001 – $320,000

N/A

$243.60

$160,001 – 214,000

$320,001 – 428,000

$85,001 – $129,000

$316.70

More than $214,000

More than $428,000

More than $129,000

$389.80

After the $166 deductible is met, Part B beneficiaries will usually pay a coinsurance of 20 percent for most doctor’s services.

Part C: outside of Original Medicare (Parts A and B) is Part C, also known as Medicare Advantage, which combines the coverage of Parts A and B and can offer additional benefits like prescription drug, dental, vision, wellness, and hearing, depending on the plan. Medicare Advantage out-of-pocket costs include low premiums, which can usually range from zero to $100. The monthly premium is determined by the plan, its coverage, and the private insurance company selling the plan. You must still pay your Part B premium in addition to your Part C premium.

Deductibles, copayments, and coinsurance averages are hard to estimate for Medicare Advantage because each plan has its own schedule of benefits. For example, a Part C plan may have a lower monthly premium but a higher annual deductible or vice versa. Or a plan may have a variation of copayments costs depending on if you made a visit to the doctor’s office or the emergency room. It’s best to speak with a local Medicare agent for a comprehensive list of plans that fit your needs.

Part D: out-of-pocket costs for Medicare Part D vary depending on the plan you purchase from a private insurance company. Similar to Medicare Advantage premiums, Part D’s premiums stay low and usually range from $15-$100 a month. Part D premiums are also affected by an “income-related monthly adjusted amount”, or IRMAA. This means that if your adjusted gross income is above a certain amount as reported on your 2014 IRS tax return, you must pay an extra amount to Medicare—not the insurance company. Here are the details:2

Yearly Income in 2014

Part D Premium and IRMAA total

Individually filed tax return

Joint filed tax return

Married and separate filed tax return

Less than $85,000

Less than $170,000

Less than $85,000

Plan’s monthly premium

$85,001 – $107,000

$170,001 – $214,000

N/A

Plan’s monthly premium + $12.70

$107,001 – $160,000

$214,001 – $320,000

N/A

Plan’s monthly premium + $32.80

$160,001 – 214,000

$320,001 – 428,000

$85,001 – $129,000

Plan’s monthly premium + $52.80

More than $214,000

More than $428,000

More than $129,000

Plan’s monthly premium + $72.90

Part D deductibles also vary depending on the plan, but it can range from a zero-dollar deductible to no more than $360 in 2016. Most copayments and coinsurance costs for Part D come in “tiers” or different levels where the cost will vary. Some plans may have a set amount (copayment) to pay for prescription drugs, and some plans may have a percentage of the cost (coinsurance) that you must pay.

Maximum Out-of-Pocket Costs for Medicare

Parts A and B do not have a Medicare out-of-pocket maximum, so that means there is no annual limit on what you could pay. Medicare Advantage does have a maximum out-of-pocket limit. Once you reach the limit, your insurance company will cover any other healthcare costs that are included under your plan for the remainder of the year. There are different Medicare Advantage out-of-pocket limits based on the plan. The Centers for Medicare and Medicaid Services suggests Medicare Advantage plans to have a limit of $3,400 and do not allow plans to go over the limit of $6,700. On average, a Medicare Advantage plan with prescription drug coverage has an out-of-pocket limit of $5,223 in 2016.3

Part D is more complex than the other parts of Medicare because out-of-pocket expenses for prescription drugs are handled differently. After you and your drug plan have spent $3,310 on covered prescription drugs in 2016, you will be in the coverage gap, also known as the Medicare donut hole. When you hit the coverage gap, you will need to pay 100 percent of the costs until you reach your annual out-of-pocket limit of $4,850 in 2016. What happens after that? Well, after the Medicare-coverage-gap-2016 amount, you will start receiving catastrophic coverage. This ensures you will pay a small coinsurance or copayment for covered prescription drugs for the rest of the year.

Let a Licensed Agent Help You Find the Right Plan For You

We know Medicare out-of-pocket costs are a lot of information to take in. And if you’re feeling overwhelmed, don’t worry. A HealthMarkets agent can speak with you about your coverage needs and help you find a plan that fits within your budget. Best of all, their service comes at no cost to you. Find a licensed agent near you, or call us at (800) 488-7621.

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Sources:
Kaiser Family Foundation (2013). Average Single Premium per Enrolled Employee For Employer-Based Health Insurance. | HealthMarkets. Telephone survey to assess the satisfaction of customers and prospects in a survey population of 5745 participants. April 9-15 of 2014.